Financial Experts Highlight High-Performing Small and Mid-Cap Stocks Defying Historic Market Crash
Financial journalist Tomoya Okamura picks up the story! Stocks to Target with NISA "Growth Investment Limit
On August 5th, which became known as the ‘Black Monday of the Reiwa era,’ the Nikkei Stock Average recorded its largest drop ever, falling by 4,451.28 yen. Just a month earlier, it had reached an all-time high, only to plummet like a roller coaster. While the market seems to be steadily recovering, what stocks should individual investors consider from here? We asked financial journalist Tomoya Okamura.
- Tomoya Okamura (Okamura Yuya) Financial Journalist
【PROFILE】 Born in 1980 in Hiroshima Prefecture. After working at a major securities company and an investment information company, he became independent in November 2010. He is active as a host of economic programs, as well as a contributor to money magazines and a lecturer at various seminars.
The historical decline was driven by the ‘Yen Carry Trade.’
The Nikkei Stock Average recorded a drop of 2,217 yen (a 5.8% decline) on August 2nd, ranking third in history in terms of decline, followed by a historic first-place drop of 4,451 yen (a 12.4% decline) on the next trading day, August 5th.
The Bank of Japan made an additional rate hike, but it was only 0.15%. Although Governor Ueda of the Bank of Japan showed a hawkish stance in the post-meeting press conference, most investors were probably left wondering, ‘Why this much?’ as the crash reminded them of the post-Great East Japan Earthquake and the global outbreak of COVID-19.
I was also surprised by the speed of the subsequent rebound. While Vice Governor Uchida of the Bank of Japan’s ‘firefighting comments’ played a role, it once again made me keenly aware of the strong relationship between the dollar-yen exchange rate and Japanese stocks (a weaker yen leads to higher stock prices, while a stronger yen leads to lower stock prices) and reminded me of the significant impact of the ‘yen carry trade’ behind it.
This time, the unwinding (reversal) of the yen carry trade progressed at an ultra-fast pace, and it was significant that the market quickly recognized that this was the ‘epicenter’ of the decline. As the unwinding of the yen carry trade progresses, the selling pressure will decrease, but this is a crucial point, so I will explain it in more detail.
Understanding the “Yen Carry Trade” That Shook the Market
Behind the rapid and significant market swings was the skewed positioning of global institutional investors, who manage massive amounts of funds across markets worldwide. Among these, the “yen carry trade” had the most significant impact on Japanese stocks.
The yen carry trade involves borrowing yen at low interest rates, converting it into higher-yield currencies like the dollar, and aiming to earn profits from the interest rate differential.
Typically, investors hold a “yen selling and dollar buying” position, so when this trade increases, it puts downward pressure on the yen in the foreign exchange market, driving the yen’s depreciation until now.
However, immediately after the Bank of Japan’s additional rate hike on July 31st, the expectation emerged that the interest rate differential between Japan and the U.S. would narrow sooner than anticipated.
Investors engaged in the yen carry trade scrambled to unwind their “yen selling and dollar buying” positions. This resulted in large-scale “dollar selling and yen buying” in the forex market, leading to a rapid and dramatic appreciation of the yen.
